Change Orders Push Sewer Project Over $130 Million

Written by Neil Farrell

Neil has been a journalist covering the Estero Bay Area for over 27 years. He’s won numerous journalism awards in several different categories over his career.

July 1, 2020

Work is progressing on the City of Morro Bay’s now $74 million water recycling facility or WRF, on a hillside past the terminus of South Bay Boulevard. Photo by Neil Farrell

Just 10 weeks into a 2-year construction project and Morro Bay’s Water Reclamation Facility or WRF is already costing millions of dollars over it’s original price tag.

Carollo Engineers, the City project management consultants, presented the council with a quarterly project update at the May 26 meeting. The item included authorization to make some 26 “project change orders” or PCOs, many of which originated with the initial request for bids and others resulting from the City’s chosen “Design-Build” project method.

The so-called DB contract means the same company that builds the project will also design it, an uncommon delivery method that’s supposed to reduce the need for change orders.

In a staff report by City Engineer Rob Livick, the total cost for the 26 PCOs is $5.9 million and raises the construction contract from $68.9M to $74.9M.

The added costs were to be taken out of the original $126M project’s contingency funds and according to Livick would overdraw the amount specifically set aside for the treatment plant by some $1.4M. It would also raise the overall cost of the project from $126M to $130.6M.

But despite the new total costs, ratepayers will not yet be effected.
“It will not impact the existing water and sewer rates for Morro Bay residents and businesses,” Livick’s report said.

The contractors, Black & Veatch and Filanc in partnership, originally bid a maximum price of $67.2M but previous change orders last fall had bumped that up to $68.9M.

Last October, with the City ready to start construction, the project developed a frog in its throat when the U.S. Fish & Wildlife Service formally called for a “consult” on the project’s environmental impacts, in particular regarding impacts to the threatened California red-legged frog.

That delay of about 6 months resulted in a $1M change order for exclusionary frog fencing that must now be installed around the entire project area.

“I call it the most powerful amphibian in the State of California,” City Councilman Jeff Heller told Estero Bay News in an interview prior to the May 26 meeting.

Heller wanted to discuss the change orders and to stress his concerns about the changes, the cost increases and the project’s direction, saying that in his opinion the City has lost control of its project.

Heller believes the changes related to the frogs and the environmental review should be eaten by Carollo, because they should have approached the F&WS much sooner in the process.

“The first thing you do,” Heller said of such projects, “is you bring in all the agencies. We hired Carollo in 2018 and they didn’t contact Fish & Wildlife until 10 months later.”

He added that the red-legged frog impacts weren’t included in the environmental review either. “They should have made contact immediately,” Heller said. “So who pays? I consider that a mistake and Carollo should eat it. That’s Program Management 101.”

He expressed continued frustration with his fellow council members who don’t seem concerned with these cost hikes, so long as the staff tells them it won’t raise rates. “Their justification for the bump,” Heller said, “is the cheap WIFIA money — at 0.83% interest rate.”

At the council meeting, project manager Eric Casares of Carollo was asked about this and said they did contact F&WS last June in connection with the Environmental Protection Agency, and the Water Infrastructure Financing and Innovation Act (WIFIA) Program, one of two main funding sources the City is tapping to finance the project.

He said F&WS didn’t respond to EPA’s call for comments for several months and when it did, the agency said it had no issues with the impacts identified for the tidewater goby and banded dune snails, but did take issue with the frog portion.

Essentially the treatment plant is being built on designated critical habitat for the frogs and F&WS wasn’t satisfied with the lack of proposed mitigations.

The frog fencing made up some $1M of the new changes and another million was attributed to the delay. Heller wanted to know why if this was known in October was the Council just now in May hearing about it?

Caseras said they knew they would get hit with an increase when the frog delay happened but not how much. The contractors sustained extra costs from the delay, first on the fencing and then having to pay idled staff and other expenses inherent with such delays.

Casares noted that the biologist that wrote the environmental review found no evidence of red-legged frogs on the property and that F&WS has thrown a blanket over nearly all of SLO County and declared it frog habitat. He also added that no one from Fish & Wildlife has ever visited the site.

The plant site has a seasonal creek — really just a wash through the hills that drains runoff — that the feds considered a “transitory site” for frog movements and there’s another drainage near the highway off ramp at South Bay Boulevard.

The environmental review did note frog habitat in nearby Chorro Creek and because the project is not close to the creek, the frog impacts were considered low.

The discussion also revealed a dustup with the California Department of Fish & Wildlife, which is requiring a “stream alteration permit” because of the seasonal wetlands.

Other changes were the product of the project reaching design milestones, which uncovered needs that were left out of the original scope of work and other changes in design due to different equipment being chosen. Some of the changes were “holes” in the RFP, Caseras said, and some saved money, too.

Caseras explained that every change order was analyzed by the project team, and haggled over and negotiated on price with the contractor before being agreed to, and then brought to the City Council for approval.

City officials said the change orders will still not lead to another rate increase, as the rates now are $191 a month for water and sewer bills combined, for up to 5 water units a month (one unit is 750 gallons). The rates include a $41 per month surcharge on top of the actual water usage.

In a letter to the Council and included in the agenda packet, former Councilwoman and project critic, Betty Winholtz, wrote, “Here is one of those ‘good faith’ statements — “Not to exceed $126 million” — repeated over and over again that now causes the community to question your believability.

“While it is wise that, ‘Despite the overall increase in the estimated total cost of the WRF project, it will not impact the existing water and sewer rates,’ ratepayers expect decreases in their bills from the low interest rate of the WIFIA loan, not the same maximum charge due to change orders that eat up cost savings meant for their pocketbook.”

Winholtz summed up the feelings of many residents, “Is the City Council and the citizens being taken for a ride?”

That’s what Heller, who in his professional life was project manager on numerous large, public works projects, fears is happening. “Watching this project is painful to me,” said Heller.

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